January 8, 2021

The Weekly Gist: 2021 Special Edition

by Chas Roades and Lisa Bielamowicz MD

Finally, a new year! Just eight days in, dismayingly, it seems as though bad old 2020 is trying to overstay its welcome, with events of the past week delivering a highly concentrated dose of everything we’d hoped to leave behind. Regardless, we’ve never been happier to turn the calendar page, and we’re excited to be back here with you to share our thoughts on the year ahead. If 2020 taught us anything, it’s that making predictions is a fool’s errand, and that unforeseen, low-probability events can produce life-changing results. What follows are not so much predictions, but trends we’ll be watching as 2021 unfolds. The great fun of writing the Weekly Gist is that we’ll be with you week after week, discussing the twists and turns that lie ahead. Things can’t get worse than last year, right?

THE YEAR AHEAD—KEY TRENDS FOR 2021

Five themes we’ll be watching across the coming year.

Getting through—and past—the COVID pandemic

With more than 21.6M cases reported in the US, more than 132,000 Americans currently hospitalized with COVID-19, and more than 365,000 lives lost to the disease, there is little doubt that the pandemic will continue to be the most important factor driving events in 2021 for some time to come. Just yesterday, a record 4,100 deaths were recorded in the US, and a holiday surge is set to drive hospitalizations and deaths higher in coming weeks. Meanwhile a new, more transmissible variant of the virus has surfaced in several states. It will indeed, as President-elect Biden has said, be a dark winter. The rollout of two highly effective vaccines, however, with others likely to be approved in the near future, means that an end to the COVID pandemic is in sight.

Two questions will be top of mind for us in the months to come. First, how much worse will the strain on hospital capacity—beds, equipment, and most of all healthcare workers—get? We’d anticipate the situation to get worse before it gets better, with many other markets experiencing the same critical challenges currently being felt in Southern California. Our nation’s healthcare system will need urgent support—financial, logistical, operational—to weather the difficult days ahead. Second, where will the true bottlenecks in vaccine distribution lie? Right now, the “last mile” is clearly the problem, with health systems forced to step in and assume much of the burden of vaccinating the population in place of underfunded public health resources. Soon enough, however, there will be plenty of places to get vaccinated (retail pharmacies, grocery stores, mass vaccination sites), and plenty of vaccines to go around. (Just today, the incoming Biden administration announced a “first vaccines first” policy.) We’d expect the ultimate challenge to be demand, not supply—overcoming vaccine skepticism, mobilizing vulnerable populations, and convincing a fatigued and disengaged public to get the shot(s). There’s a real danger that we’ll stall at 80-100M Americans vaccinated later this year, once we’ve gotten through all those who can be easily reached. That’s nowhere near enough to achieve the kind of immunity we need to end the pandemic. Much of 2021 will need to be spent on a massive public education effort to make sure we don’t fall short. These twin challenges—sustaining our health system and ensuring a successful vaccine rollout—are related. The sooner we can reduce reliance on hospitals as the nexus of vaccine distribution, and the go-to resource for vaccine education—the better off we’ll be, allowing health systems to devote full attention and resources to helping us recover from this deadly virus.

Entering the Biden era of healthcare policy

We are now 12 days away from a presidential transition, after one of the most fraught political seasons in our nation’s history. The incoming Biden administration will enjoy Democratic control—albeit narrow—of both the House and Senate, making it possible for the new President to advance his policy agenda in healthcare and other areas. We’d expect the first months of the year to be focused almost exclusively on COVID response and economic stimulus, starting with the implementation of a mass distribution and education campaign to ensure successful rollout of vaccines, coupled with more robust federal support for public health measures to combat the virus. In Congress, the first priority will likely be increased funding to states and municipalities, along with more economic relief for individuals and small businesses. While there was much discussion of sweeping healthcare reforms during the campaign, and President-elect Biden voiced support for a national “public option” insurance plan and the expansion of Medicare eligibility to those over 60, we think it’s overwhelmingly unlikely that either of those more expansive reforms make their way into law. Rather, we’d expect the Biden administration to pursue incremental improvements to the Affordable Care Act (ACA), while protecting the 2010 law against the improbable event of a Supreme Court ruling to overturn it entirely.

Any hopes of bolder reforms will face the twin challenges of having to use “budget reconciliation” to get legislation through a 50-50 Senate, and crafting legislation that can gain the support of all 50 Democratic senators. Substantive legislative action, in other words, will require a Sanders-Manchin compromise—no easy feat. Instead, look for regulatory activity to drive the Biden healthcare agenda—dialing back Medicaid work requirements, using waivers to allow states to experiment with single-payer coverage, continuing the Obama administration’s focus on reducing the cost of care through value-based payment, and seeking to address the racial disparities in care that events in 2020 laid bare. One key area of regulatory focus in 2021: filling in the implementation details of the surprise billing ban that passed Congress at the end of last year. Beyond COVID response and relief, however, we may be entering a period of relative calm on the healthcare policy front—at last.


INTERMISSION

A 2020 Weekly Gist playlist

We probably get as many comments on our “extra” section each week as we do about our healthcare content. Turns out we’re not the only ones with strong opinions about music, movies, and television! To be honest, it’s the most fun section to write each week, and often the most difficult. (Probably because we’re no experts on the subject.) As we turn the page on 2020, we thought it would be fun to put together a Spotify playlist of some of the music we reviewed last year, and some other tracks that didn’t quite make the cut. (Apple Music users, we’ve got you covered too.) Enjoy!


Anticipating a “land grab” for virtual care

Demand for telemedicine skyrocketed last spring as COVID fears led consumers to seek alternatives to in-person care. Doctors and health systems stepped up to meet the need, standing up five-year virtual care strategies in a matter of weeks to keep patients connected to care. While many systems saw more than half of their visits “go virtual” early in the pandemic, most saw volumes decline precipitously over the second half of 2020, even as COVID surged again. But we believe the genie is out of the bottle on telemedicineand strong consumer demand for virtual care will persist. The question moving forward: who will win the “land grab” for virtual care? Providers got a head start during the pandemic, but we continue to worry that many health systems may backslide on their digital health strategies, as many struggle to build a sustainable model that blends virtual and in-person care, and old turf battles resurface. Traditional providers face a slate of well-funded competitors who recognize telemedicine’s potential to create long-term consumer loyalty. Payers are launching new health plan offerings centered around digital primary care, and have kicked off a wave of acquisitions to bolster their digital health capabilities. Walmart Health now couples its expanded clinic offering with telemedicine support. And a host of digital health start-ups have been bolstered by a fresh round of funding. Consumers will face the challenge of choosing among a confusing array of offerings, and deciding which care needs will best be served by telemedicine. We believe providers are still well positioned to help them with these decisions, working to coordinate virtual care with the rest of a patient’s healthcare needs.

More to come from “supercharged” payers and disruptors

The pandemic created deep economic challenges for hospitals and doctors. But 2020 was quite a good year for payers and other disruptive competitors. Many health plans had their best financial quarters ever in the spring, as demand for elective care fell. Retailers fared even better. As expected, Amazon’s revenue skyrocketed and Walmart experienced record profits (and no drop in foot traffic) as consumers continued to shop for essentials. Payers and retail disruptors enter 2021 with bulging war chests available to fund their healthcare investments. We’d expect vertical integration strategies to accelerate, as disruptors expand their care offerings. Expansion into digital health is obvious, but payers in particular are likely to accelerate acquisitions of physician practices and other provider assets. The small business loans provided by the federal government through the Paycheck Protection Program offered a lifeline to independent doctors. But if the current COVID surge further depresses demand for physician services, the expected wave of practice acquisitions may finally come to pass. Payers, retailers and health systems are all looking to own the channels through which consumers access and receive care. The coming year will see intense competition around who can build the healthcare “platform” solution that will capture consumer loyalty.

The next wave of healthcare consolidation

With many deals delayed by the pandemic, 2020 turned out to be slower than anticipated for hospital mergers and acquisitions. But we’d expect the pace of mergers to quicken this year as health systems emerge from the winter COVID surge. The calculus centers on both strategy and security. Having weathered the pandemic better than expected, many larger systems approach the market as opportunists, looking expand their reach and capabilities. And systems of all sizes are seeking scale to enable better access to capital and greater risk mitigation—now viewed as essential should they once again face a pandemic-sized shock. As systems contemplate new combinations, they would be wise to learn from the high-profile combinations that fell apart last year. In our experience, many mergers are felled by the “social” issues: board seat allocation, leadership structures, or cultural mismatches. These types of challenges appeared to be behind the stalling of Advocate Aurora Health’s merger with Beaumont Health (which faced pushback from doctors and community stakeholders) and the demise of the combination of Intermountain Healthcare and Sanford Health (called off amid leadership turnover). Any successful merger must not only present the financial rationale for partnership, but also make a clear case as to how a combined system will bring new capabilities that will improve care, access and experience for local consumers. Expect scrutiny on deals to rise in the Biden administration with the likely confirmation of Department of Health and Human Services (HHS) Secretary nominee Xavier Becerra, who took a strict antitrust posture in reviewing hospital mergers and contracting during his tenure as California’s attorney general.


CODA—WHAT KIND OF FUTURE LIES AHEAD?

Throughout 2020, we spent much of our time working with members to think through what the world beyond COVID would look like, and what that would mean for health system strategy. We came to believe in what we described as a “90 Percent Healthcare Economy”, in which a protracted downturn in the economy and persistently high unemployment, caused by the pandemic, would lead to a secular decrease in demand for care. Our hypothesis was that economic instability and pressured household and business budgets would force a broader rethink of how much and what kind of care services consumers and employers would be willing to purchase—as a host of lower-cost virtual and outpatient care offerings proved viable substitutes for higher-cost care. Just as retailers, airlines, hotels, and commercial real estate firms would be left short of the levels of demand required to maintain pre-COVID operations, we anticipated the same to be true for traditional hospitals and physician practices. Not all the business would be coming back, and what did return would come with higher expectations for care in safer, more convenient settings (including virtual).

On balance, we’d still argue that’s the most likely future scenario. But some of the environmental factors driving that hypothesis have changed. Vaccines have arrived sooner and with more promise of immunity than earlier anticipated. A change in control of the White House and the Senate looks likely to usher in a more forceful response to COVID, with more robust stimulus to the ailing economy. And—for better or worse—consumers have proven more eager to return to the public square than economic forecasts (and common sense) would have dictated. Given the level of pent-up demand for “living a normal life”, the extraordinary amount of government money being pumped into the economy, and the real possibility of achieving herd immunity later this year, we may be headed into “The Roaring ‘20s” instead of “The 90 Percent Economy”. Rather than constrained economic activity, we could well be in for a period of explosive economic growth across the next several years. Only time will tell which vision of the future is correct—indeed, both may be true, or may alternate as the COVID situation shifts. Best then, to plan for either outcome, and the strategies and approaches that will enable success in either world. Foremost among them: a relentless focus on delivering real healthcare value to patients and consumers, with care that is accessible, affordable, reliable, and personalized to each individual’s needs. That’s a future world we’d love to live in.


And so begins another year! We’ll be back next week with a regular edition of the Weekly Gist—don’t forget to encourage your friends and colleagues to subscribe, and to listen to our daily podcast. (You’ll hear us on Monday’s episode, chatting with host Alex Olgin about what we’ve written here.)

More than anything else, as we enter our third year at Gist Healthcare, we’re so grateful for the opportunity to share our thoughts and observations with you, and to engage in a dialogue about how to make healthcare better. Let us know what you think 2021 holds in store for our industry, and how we can work together to build toward a brighter future. Happy New Year!

Best regards,

Chas Roades
Co-Founder and CEO
chas@gisthealthcare.com

Lisa Bielamowicz, MD
Co-Founder and President
lisa@gisthealthcare.com